Advantages And Disadvantages Of Large-scale Retailing

Advantages of Large-Scale Retailing

(1) Superior Management and Specialization: By superior managment most large retail organisations have been able to develop from small beginings. Size permits these organisations to employ experts for executive positions. Skilled buyers, advertising, managers, accountants, statisticians and personnel directors are all at the command of such big business.

(2) Extensive Departmentization: Large stores can usually afford a much more extensive departmentization than can smaller ones. By carefully classi-fying merchandise and creating seperate departments for the sale of each class of goods, the management enjoys not the advantages of specialisation on the part of the buyers and sales people, but is also facilitated in the discovery of profita-ble and unprofitable classes of goods.

(3) Economy in Overhead Expenses : Economy in overhead expenses is achieved in large-scale retailing. For example, the expenses of the plant—rent, heating, lighting, delivery etc. are spread over a large volume of business. Similarly, expenses for advertising is likely to be less per unit of sales.

(4) Large Buying Power : An important competitive advantage is that of large buying power. Since their purchases are large, they can obtain favourable prices, large discounts from list prices, free goods, post dating of invoices and other benefits from the suppliers. Buying also becomes effective in large scale retail stores.

(5) Financial Strength: The financial strength of large institutions often attract investors and facilitate the acquisition of capital required for expansion. Size is also an advantage in making banking connections which may enable the borrower to secure loans on favourable terms.

(6) Rapid turnover: Large scale retailing has a consistently higher rate of turnover as its sales volume increases. This is due to the ability of the large retailers of merchandise efficiently and expert managerial ability.

(7) Service to Customers: The better service which large stores are able to offer is another advantage. For, although good service is not monopolised by large establishments, many of them are able to offer superior service.

(8) Integration: Many of the larger retailing organisations have effected some operating economies through the integration of wholesaling and manufacturing activities with retailing. By performing the wholesaling operations, the business establishes closer contacts with the ultimate sources of the supply of merchandise.

(9) Institutional Prestige : The prestige which results, in part at least, from the great size of the leading chain, department store or mail order houses is a distinct advantage in attracting patronage. This prestige, when accompanied with integration, is particularly suitable for the promotion of the private brands of merchandise.

(10) Risk Distribution: All forms of large scale retailing benefit from a certain amount of risk distribution. Customers are drawn from large areas or many different lines are sold. The organisation can usually assimilate severe losses in some departments without greatly impairing the profit-making possibilities of the entire organisation.

Disadvantages of Large-Scale Retailing :

(1) Absence of Personal Contact : One of the weakness lies in the absence of close personal contact between the consumers and the owners. Most consumers meet only the rank and file of subordinate employees, rarely the owners or major executives. The general absence of feeling of friendliness towards large corporations undoubtedly has its effects in causing customers to prefer small dealers.

(2) High Overhead Costs : Another disadvantage consists of high overhead costs arising out of the complex organisation structures of large scale enterprises. Higher overhead costs are also incurred for betterpaid management. The inerease in the kinds of overhead charges tends to offset the advantages of spreading overhead expenses.

(3) Excessive Cost of Doing Business : There is the danger that the cost of doing business may become excessive. In order to carry out their plans, such stores must create a very large demand for their services. This involves certain other expenses.

(4) Dependence on Hired Employees : Large organisations must depend upon hired employees who may be less efficient in work, less cautious in management, less courteous and less effective in selling than the owner of small-scale retail store.

(5) Higher Advertising and Service Cost : For the department store and large department specialty store, it makes it necessary to incur an enormous expenditure advertising and service. Sometimes additional services provided to offset the loss of personal contact.

(6) Higher Rental Costs : Higher rental and building costs are caused by choice of more profitable but more expensive location.

Finally, it is well established fact that large stores have a much greater rate of returns than small stores. But there are serious problems faced by large stores.

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